ESG Investors Need a Single Standard to Measure Impact

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Jun 2019
Global, June, 26 2019 - Despite a growing enthusiasm for impact investment, many asset owners are constrained because of a baffling array of unverified, opaque and incompatible measurement frameworks. James Magor of Actis says this is something his company is trying to help address with its open-source Actis Impact Score.

By James Magor on Jun 26, 2019 Despite a growing enthusiasm for impact investment, many asset owners are constrained because of a baffling array of unverified, opaque and incompatible measurement frameworks. James Magor of Actis says this is something his company is trying to help address with its open-source Actis Impact Score

At a meeting of the UN General Assembly in 2015, member states went some way in mapping out a blueprint to achieve sustainable peace and prosperity for people and the planet, both now and into the future. Underpinning this plan, 17 Sustainable Development Goals (SDGs) were adopted, which are a call to action for the public and private sectors to end poverty and tackle climate change.

But how do we get to a world where there is zero hunger, good health, and economic growth.

The United Nations Development Programme estimates that $6trn of annual investment is required to achieve the SDGs. It’s a sum equal to the GDP of both the UK and France combined, but a drop in the ocean compared with the $88.5trn in assets under management worldwide.

A recent survey from OnePoll has shown that around 62% of us would opt to put our pensions and other savings to work in investments that positively impact both society and the environment. Amongst millennials, 86% say that sustainability is a priority when it comes to their investments. Yet, by the end of last year, the amount of money invested in impact investments stood at only $228bn. However, the tide is changing; $228bn represents a 100% increase in impact investment in the last 12 months alone.

Around the world, asset managers are launching new impact funds and repositioning existing portfolios with a deeper focus on environmental, social and governance issues. Asset managers and asset owners are beginning to establish consensus around the principles and standards that underpin impact measurement and management.

The World Bank Group’s International Finance Corporation (IFC) has recently developed a set of Operating Principles for Impact Management, and a global forum for organisations to build consensus on common standards for disclosure and management has been formed under the guise of the Impact Management Project (IMP).

Both the IFC principles and the IMP dimensions are highly complementary, with a shared objective of guiding investors around the world on how to invest their capital, with the intention to generate positive, measurable social and environmental impact alongside a financial return. As with any other investment, impact investments must be underpinned by metrics that are objective, transparent and independently verifiable, and allow for the comparison of performance and value between different investments.

Sadly, for those asset owners looking to allocate capital with the intention of generating positive impact, a broadly accepted framework does not yet exist. Instead of being greeted with a series of generally accepted principles and industry norms, asset owners are faced with a baffling array of unverified, opaque and incompatible measurement frameworks, leaving them little room to properly select between an increasing number of asset managers promising to generate positive impact.

Despite extensive awareness and a growing enthusiasm for impact investment, many are constrained from putting money to work in the industry because of the lack of a transparent system. This is something that Actis is seeking to change.

We recently unveiled the Actis Impact Score (AIS), an impact framework that is used to systematically forecast and measure the positive social and environmental impacts generated by our investments across Asia, Africa and Latin America. The AIS follows six simple steps and allows for the comparison of investments across different sectors and geographies. Transparency and accuracy underpin the entire framework, and all impact scores will be verified annually by external auditors. Importantly, we decided to make our framework open source, to encourage collaboration and to create a single industry standard. Nothing would please us more than for other investors to work with us to find common ground between our approaches.

Publishing our framework is one step to helping the impact-investing industry enhance its credentials and develop a verified approach to comparing and measuring impact across multiple sectors and geographies. With one framework, calibrated with recognised external data sources such as World Bank Open Data, investors are equipped to compare the positive impact of varying projects and investments across the globe. Whether the target is a healthcare provider in Africa, a university in Brazil, or a renewable energy company in India, the positive social and environmental impacts can be compared and evaluated using the Actis Impact Score.

In a world in which asset owners are increasingly looking to respond to the societal demand for sustainable investments that positively impact both society and the environment, the AIS is a crucial step towards the creation of a single industry standard. Common ground must be sought as returns on environmental and social value are becoming a compelling reality.



 

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